Illumina drops after revenue warning; Rambus holders stand pat after lowered guidance

By Rebecca Melvin

New York, April 19 – Illumina Inc.’s convertibles fell sharply on an outright basis in active trade on Tuesday as shares tanked following the San Diego-based developer of genetic research tools’ warning that first-quarter revenue will be lower than expected and full-year growth will be up by only 12%, which is lower than it has been for several years, market sources said.

Illumina now expects revenue of $572 million, which was below its original forecast of $596 million. The problem was weak sales of its HiS-eq 2500, 3000 and 4000 instruments, the company said.

Illumina is expected to report its first-quarter results on May 3. Meanwhile, there were earnings reports released Tuesday that commanded the attention of convertibles players and generated trades.

Rambus Inc. disappointed investors with a weak outlook for the current quarter although first-quarter results met expectations. Rambus shares fell $1.23, or 9%, to $12.54, but the Rambus 1.125% convertibles due 2018, which is a thinly traded bond due to its small issue size and attractive bond profile, did not trade significantly on Tuesday.

Overall, convertibles were fairly active as equity markets pared early gains but still closed at new 2016 highs for the Dow Jones industrial average and S&P 500 stock market.

“It looks like a lot of different people were active,” a New York-based trader said, adding that his firm was active “across-the-board,” but not in any particular names. Trading was predominantly company specific, and pricing was generally firm.

Intel Corp. also traded actively. After the market close, market players had their eyes on Intel’s earnings release that may have left a murky picture for investors to evaluate for Wednesday’s trade.

The Santa Clara, Calif.-based semiconductor giant posted earnings and revenue that was better than expected, but it also announced that it is planning to cut 12,000 jobs, or 11% of its workforce, creating a $1.2 billion charge, as it continues to wrestle with a transition away from PC oriented sales to one that is integral to cloud computing and the Internet of Things.

Intel also announced that its chief financial officer, Stacy Smith, will step down to take another role within the company. A successor CFO has not been named.

Also in the chip space, SanDisk Corp.’s convertibles were active at pricing that was little changed against shares that were flat to slightly lower during the trading session.

Illumina drops sharply

Illumina shares dropped $41.25, or 23%, to $136.88.

Illumina’s 0.5% convertible note due 2021, or the B tranche, fell about 8 points on an outright basis to 104, which was down from 112 to 113.

Illumina 0% convertible due 2019, or the A tranche, fell to 100 from about 108.

Illumina’s older 0.25% convertibles due 2016 matured March 15.

Illumina is expected to report first-quarter results on May 3.

The securities fell after the San Diego-based developer of genetic research tools posted a disappointing revenue outlook.

It said it expected revenue of $572 million, which was below its original forecast of $596 million. The problem was weak device sales, the company said. Meanwhile growth in revenue for the year is expected around 12%, which is its slowest growth rate in several years.

“There was a big hit from the guidance,” said a trader, who was not active in the name.

Rambus holders stand pat

The Rambus 1.125% convertibles were last at 126.5 and didn’t trade significantly on Tuesday despite a $1.23, or 9%, drop in the shares to $12.54.

Market players said that the Los Altos, Calif.-based technology licensing company’s bond doesn’t typically trade because it is small issue of just $138 million of bonds and also because it has an attractive bond profile due to the current stock price and concomitant credit tightening.

“If you have your hands on it, you want to hold on to it, as it models well,” a trader said of the Rambus bonds.

Stock performance has been strong. Since October the stock has run up to approximately $14.00 from $10.00, and that has in turn helped tighten the credit, a trader said.

Rambus reported first-quarter net income of $1.9 million, compared to $9.5 million in the first quarter of 2015 and compared to $13 million for the fourth quarter.

Net income excluding one-time items was $14.6 million, or 13 cents per share, compared to 14 cents in the same period a year earlier.

Rambus reported first-quarter revenue of $72.7 million, which was down 5% from the fourth quarter of 2015, due primarily to lower patent and technology royalty revenue from various customers, the company said in a news release.

Looking ahead, the company expects revenue to be between $72 million and $77 million for the second quarter, which was below estimates for revenue of $78 million to more than $79 million in the current quarter. According to the company, achieving revenue in this range will require that it sign new customer agreements for mobile payments software and solutions licensing among other matters.

Intel eyed after job cuts

Intel’s 2.95% convertibles due 2035 traded last at 126.12.

Intel shares closed flat, or down a nickel to $31.60 in the regular session, but slipped about 2% in after-hours trading after its earnings release.

The company posted revenue of $13.7 billion for the first quarter, which was up 7% from $12.8 billion in the year-earlier period but below expectations.

Net income totaled $2 billion, which was little changed from the first quarter of 2015. Excluding one-time items, the company had $2.6 billion in net income, or 54 cents per share, which was up 19% from $2.2 billion of earnings, or 45 cents, in the year-earlier period. But that was also below expectations.

Revenue rose year over year, driven by growth in an expanded portfolio of businesses. Strength in data center and Internet of Things groups’ revenue and a strong start for the programmable solutions group, formerly Altera, helped offset PC market and macro-economic challenges.

The job cuts as part of its restructuring initiative will reduce Intel’s workforce by 12,000 employees.

The cuts will be voluntary and involuntary from operations in many locations. The reductions are estimated to save $1.4 billion annually and to be completed in the next year. At the end of last year, the company had 107,300 employees.

Mentioned in this article:

Illumina Corp. Nasdaq: ILMN

Intel Corp. Nasdaq: INTC

Rambus Inc. Nasdaq: RMBS

SanDisk Corp. Nasdaq: SNDK

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.